The Fed Mistake you Can’t Afford to Miss

Hey There Income Hunters,


Let me tell you, growing up with an Sicilian dad was not easy …


He didn’t give me an inch of wiggle room!


We would go to a wedding and he would watch me from the other side of the room. If someone came up to shake my hand and I didn’t look them in the eyes and give the vice grip, he would run over and smack me in the back of the head.


True story!


Or even worse, if he told me to do something and I said I would but didn’t follow through — that was a kick in the butt!


He drilled this into my brain: Your word is your BOND, Billy, don’t ever forget that!” 


Obviously, then, that became a strong belief of mine — and I also expected it of others.


For instance, when I first started working on Wall Street, as I studied the Federal Reserve, I took our central bank at its word …


My mistake!


It would crush me when officials would say one thing only to flip-flop and do the opposite. I would lose a small fortune — and I would actually want to go find them and deliver a kick in the rear.


Needless to say, I quickly learned never to trust them …


Today, I’ll show you how Fed Chairman Jerome “J-Pow” Powell assured the market on a policy stance only to completely change course.


I guarantee this will happen again at a critical moment before this year is over and you will need to be ready for it. It will be very similar to what he did in 2018.


The Powell Flip-Flop


Here’s the setup. Not so long ago …


  • The Fed had printed $4.7 trillion in quantitative easing (QE)

  • Unemployment was low 

  • Inflation was above the 2% target

  • The Feds raised the effective rate — the overnight rate that banks lend and borrow against — and with that overall borrowing costs rose to slow the economy …



The Timeline


In late 2017, Powell announced that the Fed would raise rates and also start reversing QE to shrink the balance sheet …


One of those actions probably would have been OK — but to do both at the same was overkill.


Sure enough, stocks tumbled almost 10%. The market then began grinding back-up and consensus was that the Fed would stop tightening at 2%.


In mid-2018, stocks started dropping and by October they were back down 10%. Powell was asked during an interview if he was comfortable with where rates were … 


For some reason he doubled down and said rates weren’t close to where he believed they should be …


WTF!?!


The market punished him for that with another 10% meltdown. This was right into the end of the year — and it ruined Christmas for many.


So literally the first week of 2019, as the market was still going down, Powell came out and said they are done raising rates.


Instead, he started up QE again and started cutting rates…


That simply showed his weakness.


People at the Fed are economists who know how to read models — but have zero clue about how the market works. 


No matter what he says, Powell will not make that mistake again …


No, their mistake this time will be to wait too long to raise rates. That will allow inflation to go higher and stay higher because they will error on the side of higher not lower inflation….


Be prepared!


PLBY: A Unique Opportunity


OK, I believe at $45 PLBY is a 7- or 8-bagger within three years and want to play it by buying long-term calls and then selling short-term calls to add Power Income


Check out volatility differences below …



This is a gift! In the scenario above, I’m buying a 97% vol call and selling a 156% vol call.


In this scenario, I can buy a 20-month 40 strike call for $26 and can sell a 1-month 55 strike call for $6 …


If I keep rolling the short call every month, I will own a free call in approximately 4 months!


That’s incredible — the vols can shift, but so what if they do?


Let’s say I only sell the 1-month call and it expires worthless… 


Now, I own a 40-strike PLBY call for $18… and for 19-months… on a stock that will be well over $150 by then… Not a bad trade…


Bring It Home


Options offer unlimited opportunities and allow you to be so creative.


This trade in PLBY just seems too easy — but it’s the real deal.


It all starts with the value of the underlying stock. I think “the Street” undervalued PLBY from the beginning. Check out my full analysis here …

I see many other opportunities coming up in May and look forward to sharing ideas next week…


In the meantime, have a great weekend and as always …


Live and Trade With Passion My Friends,


Griff

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.